TCS Q4 Results Review - Good Quarter Driven By Total Contract Value, Margin Performance: Motilal Oswal

Motilal Oswal Report

Tata Consultancy Services Ltd. reported revenue of $7.36 billion in Q4 FY24, up 1.1% QoQ in constant currency terms, 110 basis points below our estimates but in line with Bloomberg consensus, despite ongoing demand weakness.

The growth was driven by India (up 11% QoQ/37% YoY, aided by BSNL scale up) and the UK (up 3.6% QoQ), while North America and Continental Europe were weak.

TCS reported its best quarterly deal total contract of $13.2 billion (up 63% QoQ/32%YoY, book-to-bill ratio at 1.8 times), including one mega deal. FY24 YoY CC USD growth was 3.4%.

The company maintained its strong operating margin performance, with Ebit margin up 100 bp QoQ to 26.0%, the lower end of its medium-term guidance band for the first time in the last 12 quarters.

This was 100bp ahead of our estimates, and was aided by lower subcontracting costs and continued cuts in headcount (-1.8k QoQ). Attrition (last twelve months) declined by 80bp QoQ to 12.5%.

Q4 profit after tax was in line at Rs 124 billion (20.3% PAT margin). FY24 PAT stood at Rs 462 billion (up 9.3% YoY). TCS generated free cash flow of Rs 443 billion (up 6.9% YoY) during the year.

The management outlook on the spending environment in IT services remains unchanged, despite some initial signs of pent-up demand, with a continued pause expected in discretionary deals in the near term.

While the company expects FY25 revenue growth to be better than the low FY24 base, near-term quarterly growth commentary is still modest due to a focus on projects with high return on investment and cost optimisation.

We continue to expect TCS to benefit in FY25 from the large BSNL deal execution. But continued uncertainty on growth pickup in North America and Europe is likely to weigh on overall growth, which we estimate at 8.8% YoY.

Despite growing in single digits, TCS should be among the fastestgrowing large cap companies in our coverage universe. We factor in a USD revenue CAGR of 10.0% over FY24-26E.

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